Behavioral scientists tend to downplay money as a motivator. They prefer to emphasize the importance of challenging jobs, goals, participative decision making, feedback, recognition cohesive work teams, and other non-monetary factors. The counterpoint argument otherwise here is that money is the critical incentive to work motivation.
Money is important to employees because it’s a medium of exchange. People may not work only for money, but take the money away and how many people would come to work? A study of nearly 2,500 employees found that although these people disagreed over what was their number one motivator, they unanimously chose money as their number two.
As equity theory suggests, money has symbolic value in addition to its exchange value. We use pay as the primary outcome against which we compare our inputs to determine if we are being treated equitably. When an organization pays one executive $80,000 a year and another $95,000, it, means more that the latter’s earning $15,000 a year more. It’s a message, from the organization to both employees, of how much it values the contribution of each.
In addition to equity theory, both reinforcement and expectancy theories attest to the value of money as a motivator. In the former, if pay is contingent on performance, it will encourage workers to generate high levels of effort. Consistent with expectancy theory, money will, motivate to the extent that it is seen as being able to satisfy an individual’s personal goals and is perceived as being dependent on performance criteria.
However, maybe the best case for money is a review of studies that looked at four methods of motivating employee performance money goal setting participative decision making and redesigning jobs to give workers more challenge and, responsibility. The average improvement from money was consistently than with any of the other methods.
Money can motivate some goods people under some conditions, so the issue isn’t really or not money can motivate. The answer to that is: It can. The more relevant question is: Does money motivate most employees in the workforce today? The answer to this question, we propose is “No”.
For money to motivate an individual’s performance, certain conditions must be met. First, money must be important to the individual. Yet money isn’t important to everybody. High achievers for instance are intrinsically motivated. Money would have little impact on these people.
Second, money must be perceived by the individual as being a direct reward for performance. Unfortunately, performance and pay are poorly linked in most organizations. Pay increases are far more often determined by nonperformance factors such as experience, community pay standards, or company profitability.
Third, the marginal amount of money offered for the performance must be perceived by the individual as being significant. Research indicates that merit raises must be at least 7 percent of base pay for employees to perceive them as motivating. Unfortunately data indicates average merit increases in recent years have typically only in the 3.3 to 4.4 percent range.
Finally, management must have the discretion to reward high performers with more money. Unfortunately, unions and organizational compensation policies constrain managerial discretion. That discretion is almost zero where unions exist. In non-unionized environments, traditionally narrow compensation grades create severe restriction on pay increases. For example, in one organization, a Systems Analyst IV’s pay grade ranges from $4,775 to $5,500 a month. No matter how good a job that analyst does, her boss cannot pay more than $5,500 a month. Similarly, no matter how poor the performance, the analyst will not earn less than $4,775. So money might be theoretically capable of motivating employee performance, but most managers aren’t given enough flexibility to do much about it.